Turkish annual inflation slows to 38.1% in March, below forecasts

Turkish annual consumer price inflation slowed to 38.1 per cent in March, official data showed on Thursday, lower than a Reuters poll forecast and extending its fall from a peak of around 75 per cent last May.

Turkey’s inflation sustained its downward trend last month despite a sell-off of Turkish assets following the detention of Istanbul Mayor Ekrem Imamoglu.

His arrest provoked the largest anti-government protests

in a decade and sent the lira currency tumbling to a record low.

Month-on-month, inflation was 2.46 per cent, according to the Turkish Statistical Institute, also below forecasts. In February, inflation stood at 2.27 per cent on a monthly basis and 39.05 per cent annually.

Annual inflation in the key food and non-alcoholic drinks sector was slightly lower than the headline rate, at 37.12 per cent.

Price hikes were led by a 80.42 per cent rise in education prices, followed by a 68.63 per cent increase in housing prices.

In a Reuters poll, monthly inflation rate is seen edging up to 3 per cent in March, with the annual rate seen falling to 38.9 per cent.

Based on the median forecast of nine poll respondents, year-end inflation is seen at 29.75 per cent, up one percentage point from the previous poll, due to fallout from the market volatility last week in which Turkish assets fell.

The domestic producer price index rose 1.88 per cent month-on-month (m-o-m) in March for an annual rise of 23.5 per cent, the data showed.

Meanwhile Turkey’s manufacturing sector contracted further in March, with output and new orders continuing to ease amid difficult market conditions both domestically and internationally, a survey showed on Wednesday.

The Purchasing Managers’ Index (PMI) slipped to 47.3 from 48.3 in February, marking the lowest reading since October last year, survey compilers S&P Global reported. A PMI reading below 50 indicates a contraction in activity.

March marked the 21st consecutive month of declining new orders, with the slowdown being the most pronounced since last October. New export orders fell at the fastest pace since November 2022.

“Challenging market conditions both at home and abroad meant for further moderations in output and new orders in March as Turkish firms struggled to secure business,” said Andrew Harker, Economics Director at S&P Global Market Intelligence.

Despite the downturn, there were signs of stabilisation in some areas. Inventory levels held steady after 10 months of depletion, and suppliers’ delivery times improved for the first time in six months, reflecting reduced demand for inputs.

Inflationary pressures eased slightly although currency weakness continued to drive up costs. Employment in the sector also saw a slight reduction for the fourth consecutive month, though the decrease was the smallest so far this year.

Manufacturers remain cautiously optimistic about future output, hoping for improvements in new orders and demand from the construction sector over the coming year.

Meanwhile Turkey’s central bank said it would take additional actions if necessary to ensure the smooth functioning of financial markets, as it assesses risks to inflation from recent market developments.

The detention of Istanbul mayor Ekrem Imamoglu, President Tayyip Erdogan’s main political rival, which sparked biggest protests in Turkey in more than a decade, had caused strong market volatility and a major market sell-off.

The Monetary Policy Committee (MPC) held an interim meeting to review financial market conditions last week and has implemented measures to support its tight monetary stance, the bank said in a statement.

The bank suspended one-week repo auctions and hiked its overnight lending rate to 46 per cent in the interim meeting.

In a research note, Goldman Sachs said it expected the central bank to raise its policy rate by 350 basis points “to show its ability and willingness to implement its disinflation program”.

The moves last week effectively raised its average cost of funding by 350 basis points, the Wall Street bank said, and allowed for more time for internal discussion with other stakeholders prior to raising the main repo rate.

Turkish Finance Minister Mehmet Simsek and Central Bank Governor Fatih Karahan told international investors that they would do whatever was needed to tame market turmoil. On Monday, Istanbul stocks rebounded nearly 3 per cent while the lira held steady against the dollar.

The Borsa Istanbul benchmark index ended last week down 16.6 per cent, its worst drop since the global financial crisis in October 2008.

The Treasury, central bank, the BDDK banking watchdog and capital markets board held a series of meetings with market actors over the weekend and announced several steps.